Which Way Wednesday – For Oil!

Ah, big day today!

The Fed wimped out and held rates at 2%, utterly ignoring the fact that their relentless destruction of the dollar that began in September of ’07 was the fuel that took oil from $70 a barrel to $145 a barrel in the first place.  Bernanke’s policy of talk loudly about containing inflation but showing up at the actual policy meetings with a tickle stick would have Teddy Roosevelt spinning in his grave is he wasn’t stuffed and mounted at the Met.

A 2% Fed Funds rate is a joke.  How’s your morgage payment?  Did it come down from 6.5% last August to 3.25% or is this just a way for US, the taxpayers, to fund an increase of what I like to call the lending rate crack spread for the financials so they can continue to stick it to us on rates, tighten lending requirements and continue to foreclose on 8,500 families a day because they can’t afford their 9% ARMs while the bank gets to cry to the Fed that they can’t scrape by paying 3% or even 2.3% for that matter.  What a friggin’ joke!

So we had the dollar literally flying up ahead of the Fed as Bernanke had telegraphed, if not a rate raise, then certainly a firm indication that it is time to raise rates – but noooooooooooooooo, only Richard Fisher has the balls to say enough is enough and it’s time to take back the dollar and put money back INTO American pockets.  I can’t wait to read the minutes of this meeting where a 5% run in the dollar is played down as not being responsible for a 15% drop in the CRB, which is the only thing that gives Bernanke the slack to say inflation is moderating in the fist place.  Hey Ben – strong dollar = low inflation, get it???  Apparently not…

Now we have to see if we can pawn off $17Bn worth of 10-year notes at 4% today while "Helicopter Ben" dumps hundreds of Billions of  free (OK, 2%) money on the financials so they can continue to lever up while they drive another 357,000 families out of their homes between now and the next meeting on Sept. 16th.  It’s not just Ben, of course, it takes a village full of idiots and we call ours Washington where our "leaders" have still failed to do anything at all to address the housing problem.

Bailing out the lenders and the investors while 8,500 homes a day are foreclosed (avg $250,000 per home = $2Bn/day) is like having a pipe leaking in the basement and placing orders for more and more paper towels to try to soak up the mess before your foundation cracks.  It’s actually even dumber than that, more like having a bathtub that is overflowing upstairs and water is coming through the ceiling to the kitchen and your solution is to keep putting more and more expensive pillows and blankets underneath it to soak up the water and hope the water magically shuts itself off before the whole bathtub ends up on your counter top.  If you were watching that scene in a movie, you would think nobody can be that stupid yet here is George Bush – the embodiment of everything that is wrong with 21st century politics.

It’s all about oil today.  Inventory report is at 10:35 and we already know the NYMEX crooks shorted Cushing 20M barrels for the month so we are averaging close to 1Mbd less imports than we should be.  Even with a 5M barrel shortfall in deliveries this morning, Platts is still forecasting just a 1.2M barrel draw in crude and a 1.4Mb draw in gasoline, which is more due to the very low refinery production we’ve been getting lately (running at just 87% of capacity last week even without a hurricane).  Well, if we’re not going to import any oil and we’re not going to refine the oil we do have – should we really be surprised to see a draw in inventories?   The actual number and the actual reaction will be very telling today. 

I’m willing to take a chance on some USO Sept $94 calls at $7 ahead of inventory, looking for a quick $1 and, if not, we can always sell the Aug $94s for $4, leaving us with a pretty mellow spread.  Once the Aug $94s expire, all I have to do is sell the Sept whatevers for $3 or more and I end up with a free vertical.  Right now the Sept $104s are going for $3.05 so that’s a pretty good leeway to work into.  Let’s make that a naked 10 in our Butterfly Virtual Portfolio and work our way into a spread unless we get our $1+, then it’s a quick $1,000 and we’re out.  Let’s stay on our toes though, CNBC is claiming that "analysts" are expecting a BUILD in crude, setting the market up for disappointment based on their fake research or incompetent reporting of the real research – it’s hard to tell which with these guys…

On the bright side, Paris Hilton has solved the energy crisis.  Also great in video today is this commercial for the new Republican slogan, "The Change You Deserve," which I bielive refers to the change left in your bank account after buying a tank of gas or the change of address notices being sent out by 225,000 foreclosed families each month.

Bush is in Asia and he will be changing his tune as he meets our Chinese masters later this week to help them kick off the Olympics while breaking ground on our brand new $434M embassy.  Asian markets were well up today, with Hong Kong closed for the Olympics  and the Nikkei up at the 2.5% rule but Pakistan fell 3.62% as the President had to cancel his trip to Beijing since it turns out it wasn’t likely he would still have a job when he came home.  Europe is actually flat an unexciting this morning ahead of our open.

So once again, it is all about the POO.  FRE had a loss but not too unexpected and cut the dividend, which is a sensible thing to do when you have a loss and they are getting a nice over-reaction we will work on at the open, maybe a nice $10KX play on the $7 calls if they are cheap or maybe buying the stock and selling those calls if they are not.

Let’s be careful out there but holding 2/3 of yesterday’s gains will be a win today.